Bankrupt Illinois ethanol plant sold; Chapter 11 case continues

By Sarah Smith | April 08, 2008
Web exclusive posted April 24, 2008 at 1:09 p.m. CST

Senior secured creditors of Central Illinois Energy Co-op. were awarded the bankrupt ethanol refinery in a bid approved April 23 by a federal bankruptcy judge. The $80 million credit bid, roughly the amount of the lenders' outstanding debt, does not end the Chapter 11 case, however.

The sale is expected to close April 30. The plant, originally estimated to cost $40 million and is located outside of Canton, Ill., filed for bankruptcy in December 2007 after unpaid contractors walked off the job of the nearly finished plant and construction costs skyrocketed to $130 million and investors ran out of money.

The consortium of lenders includes lender Credit Swisse and Whitebox Advisors, a Minneapolis hedge fund. They formed a new company called New CIE OpCo LLC, based in Delaware. Credit Swisse financed the project with a $90 million loan in partnership with Central Illinois Energy Co-op., a group of 250 local farmers who invested money and corn to build the plant. The original investors have lost their money, said bankruptcy attorney Barry Barash, although the new owners are renegotiating the corn contracts.

The sale doesn't end the Chapter 11 proceeding. Barash now begins the tedious process of reviewing preferences, avoidances and conveyances. Payments that Central Illinois Energy made to anyone within 90 days of the bankruptcy filing will be scrutinized to see if a particular creditor received preferential treatment, Barash said. The Bankruptcy Code states that all creditors must be treated similarly. Preferences diminish advantages that a creditor might get through litigation or aggressive collection tactics that might have caused the plant to file for bankruptcy. Avoidances allow the debtor to set aside some liens that interfere with any exemptions claimed in the bankruptcy. And any payments to insiders such as lawyers, investment bankers, relatives, officers and directors, made within the year prior to the filing, will also be scrutinized. These are known as "fraudulent conveyances" - a term which doesn't necessarily imply that fraud occurred.

"The preference analysis will be done in a couple weeks," Barash said. "The unsecured creditors may receive a significant dividend if we get lucky, but it won't include the co-op. They're too many clicks removed."

The Illinois Department of Agriculture seized all the stored grain on the premises after the bankruptcy filing and sold it to Cargill. Two days before the sale, the department announced it will give back $6 million in payments to unpaid farmers that supplied crops. Checks will be mailed out over the coming weeks, the department announced April 21.

Meanwhile, the ethanol plant buyers must assume responsibility for all mechanics liens, estimated at around $25 million, and finish the facility, estimated to cost between $25 million and $30 million. Whitebox declined to discuss the investment but it is a company that buys distressed properties, runs them until they're solvent, and quickly resells them.